Dateline Beijing: Financial crisis to dominate Asia-Europe summit

Beijing: With the omens of a global recession swirling around them, leaders from 45 Asian and European countries will meet here Friday to discuss a collective response to the ongoing international financial crisis. The seventh summit of the Asia-Europe Meeting (ASEM) was scheduled a while ago but its entire agenda has been overtaken by the need for an emergency response to the liquidity and credit squeeze radiating outwards from the United States that has seen stock market values, commodity and asset prices plummet in recent weeks across every continent.

Arriving here from Tokyo on Thursday night, Prime Minister Manmohan Singh said he hoped “the meeting of minds between Europe and Asia will produce a solution to many global problems, including the international financial crisis.” Other leaders — like Nicolas Sarkozy of France, Gloria Macapagal Arroyo of the Philippines and Somchai Wongsawat of Thailand — also arrived in Beijing with ideas for an emergency response to the crisis. But if ASEM stalwarts like France, China, Germany and Japan — now joined by India for the first time — agree that the old Bretton Woods system has come to an end and needs to be replaced by a new financial order, no one has yet come up with a concrete alternative, let alone a road map for an orderly transition from the current anarchy that has taken hold of the international capitalist system.

In the absence of well-formulated proposals, the only firm suggestion that has been made so far is for more meetings. Thus, at U.S. President George Bush’s invitation, the G-20 countries — the G-8 plus Argentina, Brazil, Mexico, China, India, Indonesia, Saudi Arabia, South Korea, South Africa, the European Union, Turkey and Australia — will meet in Washington, D.C. on November 15 to discuss the crisis. Indian officials said Prime Minister Singh had been invited to attend but that the government would take a final decision based on how the discussions at the ASEM summit proceed on Friday and Saturday.

Having been caught on the wrong foot during the 1997 crisis, East and South-East Asian countries seem anxious to play a leading role in crafting both the emergency response as well as the scaffolding of a new system.

Thus, at Tokyo’s urging, Japan, China and South Korea are likely to announce the creation of a well-funded joint financial regulatory body to help stabilise Asian financial markets, the Yomiuri Shimbun reported on Thursday. Thailand, the current chair of Asean, is proposing an Asian financial pool of $350 billion to be set up and managed by the Asean countries plus Japan, China and South Korea to bolster regional markets and fund infrastructure projects. Ms. Arroyo has also suggested a similar fund, drawn on a fraction of the region’s foreign exchange reserves, to be deployed for making soft loans to Asian banks holding non-performing assets.

Most of these emergency measures involve the redeployment of Asian surpluses from dollar-denominated instruments to those in yen and the euro. Insofar as the Bretton Woods system has been underpinned by the centrality of the dollar, it is likely that the restructuring generated by the current financial crisis will involve a shift in the relative hierarchy of currencies. This, apart from tighter oversight and regulation of money and capital markets whose unfettered excesses caused the current meltdown in the first place.

A two-day summit is unlikely to provide answers to all of these questions. But the fact that Asian and European leaders will be discussing a crisis that is essentially of America’s making underlines the fact that any overhaul of international financial architecture is bound to have profound geopolitical implications as well.